Non voting shares

The Government has backed down on a move that would have allowed it to sell more than 49 per cent of partially privatised state assets, providing the extra shares did not carry voting rights.

Fairfax Media highlighted the loophole in April and it is understood that sparked a backlash from United Future leader Peter Dunne. It is understood the Government made a U-turn after Dunne dug in his toes, arguing the wording in the Mixed Ownership Model Bill would breach his party’s support deal with National.

Last night SOE Minister Tony Ryall moved the amendment to the Bill, which changed the requirement on the Government from retaining 51 per cent of the shares with voting rights to 51 per cent of all shares. …

But under the wording originally approved by ministers, the companies could have issuing or sold non-voting shares, diluting the taxpayers’ slice of the dividends and profits that the companies generate.

In April a spokeswoman for Ryall said voting rights were the best way to measure ownership, because it was the voting shareholding that determined the ability to control the companies.

Non-voting shares are effectively more a type of debt, rather than equity. Basically it is debt, with a variable return. If you get none of the benefits of ownership such as voting, it is not ownership.

Just as non voting shares would reduce the taxpayer share of dividends and profits, so would increased debt – in that the interest on the debt would mean less profit and hence dividend.

So I didn’t think that there was an inconsistency. However perception can be very important, and hence it is not a bad thing that the Government agreed to the United Future change. It means that at least on this issue, there can’t be any scare-mongering that the Government will dilute its 51% with non-voting shares.

Personally the actual issue non-voting shares would have been highly unlikely. It is an unusual way to raise capital. People generally want a guaranteed rate of return, or a stake in the company.

It also is useful for Peter Dunne to be able to demonstrate that he got a change in line with his confidence and supply agreement.

Mark

David, sorry to disillusion you but non voting shares are not a form of debt. You don’t have to pay the fuckers back but they will dilute the value of the voting stock. Non voting shares, what the fuck were they thinking or were they just trying to be a pack if smart arses and undermine the credibility of the sales process. Sounds like some genius consultant had a brain fart.

It also is useful for Peter Dunne to be able to demonstrate that he got a change in line with his confidence and supply agreement.

It was more than “useful”, it was an important point of principle for United Future, not just Peter Dunne.

And it proved “useful” for Tony Ryall (and Todd McClay) in parliament on Tuesday, for example:

Hon TONY RYALL (Minister for State Owned Enterprises):

It legislates 51 percent New Zealand Government control, full stop, for all time—51 percent full Government ownership for all time, full stop—and it puts a limit of 10 percent on any one shareholder. There will be 51 percent Government control, and 10 percent limit on any shareholder, and that is important, and that is what is being enshrined in this legislation.

mikenmild

themono

NZX Listing Rules provide for equity instruments to be issued which carry exactly the same rights as voting shares with the one exception of the vote.

It’s also possible to list shares which are equal in every way with the exception of some carrying, say, 100 votes per share and the others carrying 1 vote per share.

It’s really a very silly argument to argue that shares with different vote levels attached are similar to debt.

In the case of the preference shares more common on the NZX you’d have a case for that particular type of instrument, but to make that case for all variants on alternate vote level shares shows a total ignorance of financial instruments.

CJPhoto

Just to add to the general chorus, non-voting shares are not in any way a type of debt. They give the holder an ownership share in the company, and the right to receive a share of profits and a share of any assets of the company on winding up.

They just don’t give the holder any of the voting rights usually provided under section 36(1)(a) of the Companies Act 1993.

Summary: not a type of debt.

That’s why National’s proposal regarding non-voting shares was a blatant breach of its promise not to sell more than 49%, and why they have finally backed down.

Rat

Youve just smashed the Market Value of the Companies by 51%, probably breaching the Banks Convenant. Farrar has put the Companys into Liquidation even before the Shares are sold.

I would say that the B shares will also be issued because at the current Market Value of Equity, prices for the ‘A’ shares are far too high ($7.50 based on current paidup shares), that puts Mums and Dad investors out of the equation for the usual 1,000 to 5,000 bundles. The Dividend yields are far too low at that price, so the Shareholding needs to be diluted so the Government can at least raise a reasonable sum of wad.